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tv   Squawk on the Street  CNBC  September 9, 2015 9:00am-11:01am EDT

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hedge. guys are coming in and running their funds 90% and 100% net long. and markets go down, they don't make as much on the way up, but they capture it on the way down. that's for the clients to determine who's adding value and isn't. >> thank you for being here. >> happy birthday. >> that does it for us. now it's time for "squawk on the street." ♪ >> bad wednesday morning. welcome to "squawk on the street." getting some follow through to yesterday's rally as the nikei sores. a lot of vague talk of stimulus in china. yahoo and united airlines in the news. ten-year at 2.23 despite the
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bank warning the fed not to hike. oil is just a tad lower. the road map has the rally continuing this morning. >> plus the september date has arrived for apple. a new iphone, ipad, apple tv, can it help the stock going into the holiday quarter? >> next big short. why one natural gas company is, quote, a disaster. >> first up, futures are arise again after the dow closed up 390. the nikkei surged up 7.7%. and short-seller, continuing to sell the alarm on his bet against china on squawk. >> the chinese economy, since i was on squawk in february of 2010, was growing at 15%, nominal. it's now growing at 5% nominal. 7% real, 2 % deflation. it has been going down in terms
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of the economy by 2% a year. that's going to continue. the model is broken. >> chanos reiterating his message, that is the economy is still 50%. investment driven, and as the economy slows down, he sees a credit event where they lose control of the currency, lose control of their financing, and that's when the real magic happens. >> he's not alone in that opinion. there are many people who would fight back strongly against that series of events actually occurring while we are seeing a significant slowing perhaps in the chinese economy, there's a feeling that the government has the right levers in place and will do things to keep it under control, and the credit bubble has been slowly trying to take out the air from that bubble, if you will, over the last couple of years. >> can they manage it? constructive comments again
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overnight. we heard in the g 20 over the weekend. they're saying there's not much longer the volatility has to last. overnight saying they don't want to start a currency war and they don't want to devalue their currency for the benefit of their exports. sort of calming some of the concerns out there, and the communication is key. because that's been one of the problems, and one talked about it in the financial times last week that they need to communicate whether they have this under control, whether the $3.5 trillion in reshs, that cushion is sound enough to fight what's next. >> when you think about china in the u.s., i would argue geo political concerns should be more to the front. we have the meeting in seattle that's going to be taking place soon amongst the chinese leader, and a number of significant leaders of our business community, but there is a great deal of tension between the u.s. government and china, specifically about an issue i've been talking about, namely cyber espionage by the chinese
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government or their entities on what are u.s. corporations. the key part of this visit are taking place in seattle in the business community, not with the white house. >> as they prepare sanctions which we may hear more about with iran. >> that would be serious. >> let's bring in head of u.s. equity strategy at jpmorgan. good morning. it's good to have you. >> good morning. >> we know what the currency moves have done to volatility here. generally your sense is it should be manageable? >> we think it should be manageable. we expect volatility most likely to remain elevated in the short-term, coming weeks, perhaps month or two. but we do see potentially a leg higher in the market by the time we reach year end, especially the final part of the year. >> is that just because of seasonal biass? >> there's a number of different things. one, there is still a tug of war
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between technicals and the fundamental side of the market. and technical, there's been a decent part of technical. it's not done yet, and we think there's still some more technical selling pressure to continue over the coming weeks to the end of settlemeptember. we've been talking about systematic strategies, ctas, strategies that continue to exert negative pressure. that cycle will most likely come to an end in the coming weeks. september and october are typically weaker months, but november and december, seasonably stronger. the window dressing effects. markets starting to focus potentially more into 2016 growth. expectations, which look better than today, and i think we might get a leg higher toward the end of the year. >> but in the short-term, the sharp bounce we're seeing in
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stocks this morning. you don't think it's a signal that the worst is over? >> not yet. we think the risk reward for equities is not that attractive. i think if you look, we say that probably over the short-term, perhaps take advantage of the dips to buy partially, but i would still not be in favor of going full flej into the market in the short-term. >> this morning, people are looking at the nikkae, and saying the fact that the rallies are being backed up by volatility measures is productive, in the short term. you'll go along with that? >> i will. but we still expect volatility to remain elevated in the coming weeks. it will take time for it to come down and for some of the technical selling pressures to go away. over the next three weeks, likely $100 billion worth of t outflows on the backside of technicals. you have fundamentals providing
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support. >> you wouldn't touch casinos or auto parts? things that are still leveraged to china in extreme pockets? >> that's a good point. certain parts of u.s. equities are more levered or exposed to china. casino airport or thes is one. look at some of the consumer products, some of the software names, you also have a few of the, also blue chips like the apples of the world. so, yes, a few areas of the market have higher exposure but more broadly, i think it should be contained. >> there's an interesting move. the dollar is back to strengthening. that's an interesting dynamic as stocks strengthen, the dollar strengthens. and the two-year treasury yield is trading at the highest we've seen all year. traditionally higher yields and stronger dollar are not great for stocks. so far, we're tolerating it, but are they head winds?
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>> strong dollar is a head wind and has been. it's been a head wind for multinational earnings throughout this entire year. i will say it's really the delta in the dollar or the positive delta in the dollar that tends to be a head wind. >> change. >> yeah. change. i think the strong dollar in terms of absolute levels isn't negative. >> the strength in the yields we're seeing today, can we assume that's china net selling treasuries or is something else at work? >> there could be multiple things at work. growth, sentiment, it could be china. they've been selling a lot of their reserves over the course of the last few quarters. that could be another impact. >> thank you for that. good stuff. thank you for joining us from jpmorgan. >> one of the big events in focus is happening in san francisco. for more on what to expect at this point from apple later today, let's go to john. good morning. >> reporter: good morning. here's what i love about the
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setup here. normally with apple events it's like you know what to expect. they have their event at their campus and you get the iphone in september and some i pads, maybe a month later, they're shaking things up. we're here and they haven't done an event here ever, and it seems like they're going to announce a lot more than just the new iphone today. plus this is normally a sell on the news event for investors, apple stock climbs through the summer and then around early september when the iphone comes out, the doubts roll in. people have been doubting this new iphone way before it's even announced. interesting set up for investors. what do we expect? probably call the 6 s and 6 s plus, probably going to cost what it has in the past. forced touch, a new way of interacting with the phone, deeper presses, maybe a more enhanced force touch on the apple watch, and on the mac. also expect a better front
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facing camera and maybe a better aluminum alloy to make the phone a little more durable. also updates for apple tv. we expect an app store there. a more expensive box that can do more, perhaps interact with siri. also on the ipad front, a larger ipad, perhaps called the ipad pro that's able to run full-sized apps side by side. what should investors do? i think you have a question, how is the consumer going to react to pricing. in a lot of markets, carriers are changing the way they do pricing of phones. not subsidizing them as they did in the past. a lot of the initial reaction was this must be bad for apple. in the necessarily. now every phone people get, whether it's an iphone or not is going to look expensive. and the iphone 6 is going to be probably cheaper than it was last year. so it'll seem like a bargain. apple has been taking share from
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the likes of samsung and other android makers. it'll be key to see if they can continue doing that. apple is competing with old iphones in this launch right now. about 70 % of the installed base of iphone users who tend to be loyal are not on the 6 yet. they're not on this new phone. can apple entice them to upgrade with the futures in this new phone and with the whole eco system of other phones, including the apple watch and this new apple tv we expect that are going to work with it? >> i'm looking at your shot behind you. because it's apple, it's secretive. everybody has been speculating on why there? why did they choose a venue that's 7,000 people versus the other place in san francisco that only fits 757. some of the other auditoriums that fit way less than 7,000. that's a place president obama goes to speak. >> reporter: yeah. and i asked apple pr that, and the person i asked said,
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honestly, i don't know. there might be a musical act in this event. often there is at least one apple event in the fall, maybe it's a really good one. i don't know. billy joel is in town. we'll see if it's him. >> i've got a guess. >> doesn't matter to the consumer at home or the investor? >> i have a guess. i think taylor swift would be a good one now that they're back on together, apple and taylor. >> that would be the biggest coop they've ever had. think about how huge she is. she's going to play an apple event? come on. >> we'll talk a lot more with you throughout the morning before the big event. >> let's get to breaking news out of puerto rico. kate kelly has the story. >> puerto rican officials announced a plan for addressing the debt, an amount the governor has deemed unpayable. the group is puerto rico's
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finances including external members. the consolidation of schools to save costs. cracking down on tax collections and the pursuit of the ability to seek chapter 9 protections from the federal government. of course, that's not a new i a idea. that's been long underway. there's a debt service payment that was due. they deemed the debt load unpayable. an effort to rattle creditors into negotiating better terms before puerto rico but also to come up with longer-term fixes. the island has an estimated $28 billion financing gap over a five-year period starting now, and the task force recommendation to address only half of that is probably not going to go the full distance. some interesting ideas. to be fair, some concrete suggestions, however, not a lot of solid action. a lot of discussion about ideas
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we've seen already, and i'm guessing that creditors, once they have a chance to digest this will see it as another negotiating tactic. >> thank you, kate. when we come back, a bump in the road for yahoo shares, falling on the irs ruling. >> and thomas perez, his immediate reaction to janet yellen's data. take a look at the premarket. last 13 sessions we've gotten seven 2% moves on the s&p. in the prior 167 sessions, we only had one. amazing jump in volatility. a lot more "squawk box" live from post nine in a minute.
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. >> the irs tells yahoo, we're not going to give you a all right of ruling, stating the spin off from alibaba would be tax free. bag in january, jyahoo said it would sell off the shares of alibaba.
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a number of research points this morning. it seems to indicate a belief that yahoo will not move ahead with the spinoff of alibaba. that's not what i'm hearing. i'm hearing they're going to continue to rely, perhaps, on the decisions and the -- of their lawyers who focus on the tax consequences of this potential transaction, and over the next few weeks are going to review whether, in fact, they do choose to move ahead with it, despite the lack of this private letter ruling from the irs. because nothing says it would not qualify as a tax free spin, and it would require the irs to come after them, and that could take a lock period of time to prove into the irs felt it wasn't tax free that it wasn't. all that being said, yahoo is expected to consider something else, namely that they would consider spinning off the core business in yahoo japan and leading a alibaba stake, and not incuring the gains they would if it wasn't a tax free spin.
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there's the plan as it was stated in january. this seems to be the most likely route for them to go. no tax authority, and bob willens coming in and says he believes it will be treated as a tax free spin. we'll see from here what occurs. also important to point out the decline in alibaba's shares. yesterday in the middle of the day, they lowered guidance for the september quarter at the city conference by simply saying they saw it single digit. the gross merchant value coming in a single digit less than they believed it would be in terms of the growth rate. alibaba's rates being hammered. well below the ipo price. that has impacted the overall value of yahoo. they own 15%. and soft bank. that's not getting killed despite the japanese market's incredible run because of their ownership.
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they own 31% of alibaba. a lot more to come here. it still looks potentially more likely than not with the alibaba spin will move ahead without the private letter moving. >> we saw that in the share price reaction after hours. they were down and then up. >> 85% of the street has a buy on alibaba. >> which is now less valuable. >> we will talk to art cashin after the break. take one more look at the premarket and see if we can string a couple of good days together in a row. t td ameritrak hard. wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement.
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the buyers are back second day in a row. that stunning move higher for japanese stocks is helping sentiment this morning. >> it's a big promise of a tax cut going into next year. other signs of stimulus. i'm quite happy about that. as you know, i've said while everybody had their eye on china, i thought it was japan falling apart, and i'm glad that they had that bounceback. let's see if they can hold onto it. i think the economy there is still under some pressure. >> did you hear anything specific from the chinese or the japanese? any new ideas that would have warranted a move like that in the nikkei? >> they're talking about cutting corporate taxes. >> into the 20s, eventually. >> it sounded to me like they were talking some of it as early as next year and then moving along, and the chinese had done a thing on dividend taxes, and
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also promises to help the shadowbashadow banking system, and you also have the reaction. and in china, a little help from the government. that wasn't as clearly evident in japan at all. >> what about in the u.s.? the nasdaq is back in the black for 2015. how significant is that and how convinced are you by this bounceback that the bulls are going to be back in charge? >> i'm not sure they're fully in charge. this is normally the bottoming process. it goes on for a couple of weeks. we're a couple of weeks into it. usually we may have another retest. we don't have to go back to the lows, but you need a little bit of a swoon to see if it's built in there. as carl pointed out earlier, big moves like this are highly unusual in getting them back to back is exceptionally unusual. usually we see the opposite way, a big up day followed by a big down day or vice versa.
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>> you're watching "squawk on the street" live from the financial capital of the world. the opening bell in about two minutes. build-a-bear is going to ring the bell in a moment. hence the stuffed animals on the trading floor. japan up almost 8%. they talk about additional stimulus. china saying they will make measures to massage the downturn in their markets and economies. europe is following through and now we are all on a day where the headline going into the early afternoon is going to be apple and san francisco. we just heard from john fort t, new phones and new ipad. i'm still taken by the tone. this is usa today this morning. for low expectations. apple's latest iphone is already a bore. >> ouch. >> saying that geriatric by tech
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standards. it's clear the thrill has faded. i don't know what's going on there. maybe it's because the stock hasn't behaved as it usually does going into it. >> exactly, potentially moving up. i also do wonder, we talked briefly about it moments ago, about alibaba. yesterday when they said, carl, and sara, that the magnitude of consumer spending in china is negatively affected by psychologist due to macro head wins, was that affect apple. >> it's 30% of revenues, the tim cook told cramer everything was looking okay. buy the rumor, sell the fact. that usually happens with the iphone cycles. we haven't seen this kind of price action which is actually negative, down 6% in the 30 days before the release since the first iphone, but we haven't seen 1,000 point drops on the dow either. >> we're going to get microdata.
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still looking pretty good, purchase year over year the highest since '04. we'll get jolt in 30 minutes. and we'll talk about that. there's the opening bell. a look at the s&p at the bottom of your screen. as we said earlier, at the big board it's build-a-bear, celebrating national teddy bear day, and zillow ceo doing the honors at the big board. we'll talk with him later today on squawk alley. there's a stock that's been challenged over the past few weeks as well as integration with trulia. >> hasn't gone as well as they would have hoped. >> he promised it would finish in the third quarter. i'm looking at the opening trades. technology is strong again. this is what we saw yesterday with the nasdaq leading the pack and leading itself out of the red for 2015. also the strongest group along with consumer distregs nar bodes well for the u.s. economy.
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we are seeing this bounce back continue sharply in u.s. stocks. coming off the second best gain of the year for stocks yesterday. >> yahoo, of course, one of the biggest losers today. david brought you up to speed on that irs story a few moments ago. there is general talk that this is part of a broader crack down in inversions or any sort of tax loop high schoholes american co are streaking to get. >> it doesn't necessarily say that you don't do it. it says we're not going to give you the permission to do it. and we all know, of course, in terms of inversions, the various acts that have been taken, particularly by treasury to try to close the so-called window for a howing them, but there are plenty of corporations trying to figure out how to change their
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tax jurisdiction. we have an uneven playing field where in some industries you have a lot of players who are vo advantaged by the fact that they're not under a u.s. tax regime. >> and in the red, jeff smiezic and go other senior officials resigning amidst a corruption probe. did united -- they called it the chairman's flight, apparently. although, they are going to leave with a $5 million payout. >> but there's a clause that if anything comes up in the investigation, that could be under threat informal we'll talk to thrill later, but the new ceo of csx, the big railroad company speaking yesterday to investors saying that he needs to make united great again. they stumbled before. it's not just this integration.
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interestingly, mu noz has a decade of cf x cfo. they were down yesterday, but this comes out of the investigation of the george washington bridge closure, and the investigation into the port authority and mr. sampson, who you mentioned earlier, the chairman at the time, unexpected route for it to have taken. two others losing their jobs as well. >> dave and buster, not a big cap name but recently public. $0.40 beat by $0.17. they raised their guidance. comps were constructive. that's going to be a record high on one of the best stock symbols out there which is play. >> same-store sales were 11%.
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they have 77 stores in the u.s. and canada. they're growing that footprint by 10% a year. 17% higher revenue from food and beverage. i was sitting here with yahoo's mike santelli. he said this is the new chuck e cheese. i did not realize. >> i remember going in the 90s, shooting some stick. >> i'm not that old. >> you been to a build-a-bear workshop lately? i bet you have. >> we do have some stuffed animals for the kids, but mine are probably the only ones in that age group. >> i think we're still looking for an indication, sha near, announcing a new short position calling it a looming disaster. in his words, they are committed to some expensive facilities even as he sees demand
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flattening out. we said they may have crossed trades. >> i kahne has taken large positions in a number of energy-related names and has not done well with them over the past few months. but contrary to many people's belief, perhaps, as an activist, he takes long-term positions in these things. nobody has better i thinnstinctn him. but you also have bow post, seth klorman. they do a lot of due diligence. it will be interesting to see. they're long cheniere. it's going to be the first exporter to export natural gas from our country. >> stock is down about 19% so far this year. and if jim were here, i think he probably would be defending the ceo as well.
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a lot of people have had trouble with his compensation but not necessarily questioning the underlying fundamentals of the company. >> i thought about jim this morning, and how much credence. >> jim cramer. >> yes. >> also another stock is macy's. they're closing more stores. 35 to 40 underperforming stores, that's about 5% of total locations, and it comes on top of already macy's has closed 40 stores over the past five years, transitioning into a world that is driven by brick and mortar and online. not giving up on stores. they're building new stores when it comes to outlets but shares down 20% from the high in july. and this is a down year for macy's. a rare down year. they navigated through the
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recession. there is a slack in spending on apparel and in department stores. they're also under activist pressure. >> starboard having delivered the alpha concerns, the high was reached on that. downhill ever since. and it remains unclear what actions the company is going to be willing to take when it comes to doing some sort of a transaction to at least realize some of the so-called realize value that others see there. >> that harold square location has to be pretty valuable. >> it's almost priceless, but they're not going to do it. they're going to do a sale leaseback on macy's? >> that's a big piece of property. >> it is. >> large. mcdonald's, again on the record, they announced they're going to cage free eggs in 100% of their 16 locations in the u.s. and canada over the next ten years.
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also japan comps came in 2 .8. that's the first rise in 19 months for mcdonald's japan. stock is almost back to 9 7.5. that's a level they've been unable to crack since mid august. >> utilities are the only sector in the red right now. telecom and utilities doing the worst. what we're seeing on the two-year yield is a jump to the highest level of the year. utilities are under pressure. last month, utilities were down 6.5%. one of the hardest hit group. >> goldman being up graded to buy. they see 20% up side. they're calling it relatively
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favorable market. they're talking about skill set and innovation and technology. a third of goldman employees are engineers -- they're highly leveraged to the tech. >> there's a great deal of communication in them as well. it's one of their great strengths. and they develop a lot of their own, even for their own trading. they chase that russian guy to the ends of the earth. where did that end up? didn't he get up recently? >> i don't remember. dow is up 164. utx leading the charge. mary thompson is on the floor for us today. >> off the highs of the session for the dow jones. the u.s. markets again taking their lead from the overseas markets overnight and extending their gains from yesterday on the heels of strong moves in japan and china. strength in europe this morning. no real reason for the rallies overseas. corporate taxes are going to be
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cut in japan. other comments, basically comments we've heard before out of china about additional stimulus driving the markets there. in the u.s., investors optimistic, hoping to spark a two-day rally. let's take a look at the intraday chart of the dow. the dow is out of correction territory crossing. it takes it out of correction territory. the russell 2000 is also out of correction territory given today's rally that we are seeing today. the dow movers, you heard them talking earlier about goldman sac sachs, an up grade by bank of america. and global m&a, it's going to benefit goldman sachs, hit $3 trillion, slightly below the levels of the record 2007. very strong environment for global m&a, it will be a good thing for goldman in the coming quarter. ge extending the gains from
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yesterday. mcdonald's up on the news of the better than expected sales in japan and boeing, there's a company offering 2 billion in cash for a united launch alliance which is the jv between boeing as well as lockheed martin. boeing getting a bid from that news. the tech stocks moving higher. this ahead of the apple conference or apple presentation later today. semi conductors continuing to gain from yesterday. they were up on the heels of some better than expected earnings guidance. materials stronger along with energy despite the pullback we're seeing in oil today and financials higher as well today. we just want to note a couple of stocks. free port mac morn. strengths in copper. and also continental resources. the company is cutting capital expenditures guidance for this year by 300 to 350 million as
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the company deals with lower energy prices. it isn't cutting the full-year earnings guidance, just cutting capital expenditures. the dow coming off the best levels of the day. up 133 points. back to you. >> thank you, very much. mary thompson on the floor. let's go to the nasdaq with some of the movers there. >> in the tech sector, it's out of correction territory. now just within 7 % of recent highs. apple a strong gainer. a built of a double happiness story for them. extending the gains ahead of the event this morning, and then also getting a bit of stimulus from that china stimulus move overnight. we are seeing apple here higher trading at the highs not seen for about a week and a half high. we'll see if it can continue the momentum. very strong in the chip sector and a number of the china stocks. take a look at j.d.com. it's leading the nasdaq.
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alibaba issued statements about its bounceback. and netflix today looking to break a seven-session losing streak, hoping eight is a lucky number. it's going to be expanding the streaming service to other asian countries, including south korea, singapore, hong kong, and taiwan, and biotechs are strong this morning but there are a few names, a lot of data, a lot of biotech conferences. and a few on negative trial results and mankind with a downgrade over at piper jaffrey. back to you guys. >> all right. thank you very much. breaking that losing streak on netflix. and also watching crude down more than 1%. under pressure again. jack jackie with the story and no data today. >> that's right. the data is delayed because of the holiday and the day off on monday. but we are watching the prices
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down slightly again. $0.42 on wti. and brent is hanging out under $50. we have a little bit of a strong dollar today. it pressures crude, and the market is really digesting the recent volatility we've experienced these swings of 2 or more in some cases on a daily basis with crude. they're also taking into account the data from saudi arabia. 10.3 million barrels a day for saudi arabia. it was 32.1 million barrels. down slight lie from july. saudi arabia making an effort to bring production down but just a drop in the bucket when you look at the grand scheme of things when it comes to production. we'll hear in the api later today after the close. we'll get the numbers tomorrow morning. perhaps that will be a catalyst. i think a close over $46 at this point would be paramount, and the key technical level to the up side is the $47.
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>> that apple event is just a few hours away. how to trade that stock ahead of the announcement. we'll talk to an analyst on the ground. and later, two executives out thanks to the scandal. phil will join us with the latest on that when "squawk on the street" continues. but you're armed with a roomy new jansport backpack, a powerful new dell 2-in-1 laptop, and durable new stellar notebooks, so you're walking the halls with varsity level swagger. that's what we call that new gear feeling. you left this on the bus... get it at the place with the experts to get you the right gear. office depot officemax. gear up for school. gear up for great.
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the . >> dow is up 118. we're just a few hours away from apple's launch event. everything from new iphones and i pads and the next generation apple tv have been rumored to take center stage, but what do investors need to know? joining us is an analyst at bgit. >> good morning. >> we wrote a note on friday saying the play book is different this time with the stock declining into the event. is this really presenting a buying opportunity into the event? >> there's been a couple of articles as well talking about this concept of iphone fatigue and is there enough interesting thing. and the media buzz has been less that year than past years. you can't ignore, but for every
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one of these s moldels, there i a concern about whether there's enough incremental change in the phone to have demand. so many customers have legacy 5 and s phones with a need to upgrade. that's about 70% of the customer base. that's a big opportunity for apple. >> you're sort of answering the question. what do you think we need to see in terms of upgrades to this new s cycle. it's not a new generation phone, to drive demand and the upgrades from the previous 5 and 5 s? >> there's been a lot of stuff rumors. hopefully they'll come out with something new or better than what people expected. that just hasn't been the case for the past couple of years. if the fact that this phone has lte, and an existing customer didn't. this has greater speeds.
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there was news yesterday about verizon talking about 5 g and great speeds. this particular phone has a new form of technology of carriering a gags that uses even more spectrums. the user gets faster speeds. will that stimulate more than the typical upgrade? those are the types of things customers care about as a reason to up grade old legacy phones. >> we just saw apple dip negative. i'm watching the stock reaction. it is down. it was up .3 earlier. what about i pads? this is their second biggest product. it's nowhere near the level of iphones. but it's important. do you expect an announcement today? >> the ipad has been a disappointment. maybe they have come up with
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integration of devices. people have been talking about apple tv and what that can do, maybe enabling job line gaming. for i pads, changing sizes and things like that, it might not be enough. it might be that this category is just stuck inbetween the kind of -- the large phone that's out there for people, and maybe the computers that have been a pretty good seller for apple as well. >> a couple of reports out today, looking at the idea of a style us with a tablet, and how much steve jobs hated that idea. is that the kind of thing that would reignite the category? >> i don't think that will reignite it. the large-screen phones excited the category. there are a lot of customers walking around with very small phones that want a larger screen. 70% of the base out there has
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basically small phones that need an upgrade. frankly, things change. interests change over time, and jobs was also negative about the larger-screen phones. but it's been a huge win for apple. maybe it could change things, but i'm sure people can buy that in a secondary market already. >> long way off from your price target of 160 on apple. at 111. thank you for joining us from san francisco this morning. >> when we come back, drama in the skies. united contin united continental is out. we'll have more on that on the other side of the break. aleve pm. the only one to combine a sleep aid... plus the 12 hour pain relieving strength of aleve. be a morning person again, with aleve pm.
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>> the united continental ceo is stepping down. phil joins us this morning with more on this. shares under pressure this morning. >> a little bit. i think that's because investors are trying to figure out if this will lead to united becoming a better investment now that the shakeup has taken place.
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jeff smisek resigned yesterday along with two top executives. in part because of their ties to a federal probe. oscar munoz is the new ceo. underperforming operations at united airlines in a number of areas, unhappy pilots, the flight attendants are looking for a contract, and there's a battered corporate image. those are things he talked about addressing on a conference call. >> my job is to stop the concern about the future. and that only happens by direct and personal outreach, and that's where i'm going to spend a lot of my first 90 days. >> reporter: as you take a look at shares, he says he will go around to different areas at
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united, flying on the airplanes, talking with members of the employment force there, but the bottom line is this. you read the analyst notes this morning, everybody says oscar munoz says the right things on the conference call, can he do it? >> speaking to a lot of people who fly. that's for sure. thank you very much. when we come back, the labor secretary on jolts. don't go away. can a business have a mind? a subconscious.
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>> good wednesday morning. welcome back to "squawk on the street." markets holding in to a rally for a second day. we're off of session highs. we were up 172. now up 130 on the dow. we'll see if this holds as we have a long day ahead, including the apple event in a few hours. >> apple's big product event getting underway in a few hours. we'll have a live report from san francisco. and thomas perez joins us live to respond to today's new data on jobs.
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t we're a week away from the all-important fed meeting. and we'll talk to citi group's, a notable call. >> coming up, a live interview with the ceo of toyota north america. he'll give us more information. >> we start with apple. a big product event getting underway shortly in san francisco. josh limpton is there live. >> i'm at the bill graham auditorium. it's unusual to have an event here. usual some people are asking if we could be treated to something unusual and special here. we expect a new iphone, the 6 s. improved camera, a faster processer, the question is whether that new camera and
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price cuts to the 6 and 6 plus could help apple grow iphone units in december and next year. that is the big question for apple's investors. also expecting a new 13-inch ipad. the ipad pro. when i last week to tim cook, he remained bullish on the ipad, because he thinks they're going to continue to win with that tablet in the workplace. so the question is with that 13-inch form factor help them gabe mo gain more ground in the enterprise. apple tv, they sold about 25 million of those devices not a big financial impact, but strategic. loyalty with users. and maybe new users. and if apple is going to turn this tv into more of a gaming machine, that is apple going right after sony, microsoft, and
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anyone men nintendo. we could also hear about one more thing. surprises could be on the way. >> we'll be seeing a lot of you later today. josh in san francisco. to the markets this morning. stocks rising again today as the nikkei searches more than 7%. steven reese is with us and chad landers. good morning. we have nikkei up big and the six coming in, a three handle on the 30-year. problem solved? >> not at all. >> what does it mean? >> short-term jolt to theover all markets. long term projections for global growth are decelerating. the markets have to take this and reprice many risk assets. we believe that when it comes to the united states, the s&p 500, total return, 5%. and when it comes to the overall
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markets on the emerging market side, we could see a continuation of downward draft, but we believe that's short lived. >> and sentiment has gotten flegtive in places like europe and japan and the u.s. stimulus in china in the over night. the whirlwind from oh, no, the u.s. is falling into recession to now it's okay. and now a lot of the parts, particularly domestic focussed sectors were oversold in our opinion. >> are we in a period here where you sell at 19.80 and then regroup to buy at 1900? i mean -- >> here's the strategy that we would put into place. we believe over the next 18 months, the downside between 1700 and 1800. when the markets start to sell off, we would move down the quality spectrum and look at high yield and emerging markets as an entry point. we've been in a low return
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environment for the last three years. we're finally getting an opportunity here to actually enter the market and get a good future forecasted return. >> so we just got the jolt number. we'll talk to the labor secretary in a moment. job openings up. here's the problem. how can the federal reserve raise rates when two credible institutions like the world bank and the imf, they don't have to listen to them. they have their own mandate, but two host bretten woods, institutions, that are meant to ensure economic and financial stability are telling them not to do it? >> our view continues to be december. we don't think it will be this month. it could, but i think the good news is the actual data in the u.s., whether it's consumer, jobs, housing, it all looks better. while there are stressors, we think they're on track to raise this year. i think that's going to be a
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positive for developed market equities. the path through there won't be straight line informal i think we'll have more volatility, but i think the underlying -- down about 6% from the highs. there's a lot of good companies out there buying today. >> are you fearful of a rate hike? >> i'm not. our expectation is in 2016. if it happens in december, it doesn't matter. we're path dependent on not the first rate hike but how many times they go. we do not expect them to go a great deal in 2016. in fact, our terminal rate expectation is far below the street. >> we're seeing a lot of big macro calls arguing the u.s. is in a late cycle stage. there's not much upside. margins look as good as they're going to get. byeback. >> earnings will be better than oil. the drag from the dollar will be
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less. we don't want to be too negative on the u.s. the earnings should be decent next year. >> would you overweight or underweight u.s. vers >> there's going to be a divergence between the commodity and the consumer. >> we believe dollar strength will kick in over the next 18 months and you want to just stay dollar domestic on your fixed income. and when it comes to the u.s.. >> it is notable the dollar is off 4 % on the peak it reached earlier this year. that should give breathing room to u.s. corporations. >> for the time being, and we are recommending overweighting u.s. multinationals for the time being. we'll have to keep this in a balanced mode. we think the united states is the best place to invest, and
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the economy here is starting to kick back in here. >> and the sectors you would avoid if you're going to get more selective domestically. >> in the commodity-linked sectors, industrials, materials. >> you're not worried about an m&a boom ruining that thesis? >> we've had a pretty negative outlook on commodities. even though some companies are cutting costs to survive, we go with the earnings growth, and that's consumer, health care. >> thank you. >> let's talk about the new jobs data. the number of job openings rose to 5.8 million according to the u.s. bureau of labor and statistics. good news on the jobs front. joining us is the labor secretary. it's good to see you again. >> always good to be with me.
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>>. >> the rate is steady. that's important. what are we seeing this summer in terms of the job market? >> i think you're exactly right. another solid report. this is a record high in terms of job openings, and the job openings are in the sectors that pay very well like business and professional services is the sector with the most opening. the depths of the recession, we had roughly seven job seekers for every job opening. now we have 1.4, roughly. again, i'm not a math major. i'd rather compete with one person or sometimes not even one person than six people. so when you combine this with the first-time claims for unemployment benefits that are at the prerecession levels, consumer confidence high, auto sales continue to be solid. all of these are good bellwethers of an economy that continues to move in the right direction. >> shouldn't we see, with that, wages going higher? we ask you this every single time, and we're starting to see
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momentum, but as the labor market tightens, and the unemployment rate drops, why isn't the wage growth there? >> we had a good month last night, but i agree with the basic premise that wage dwroet is still part of the unfinished business of this recovery, and as you know, wage growth, that issue predates the recession. it used to be for decades following world war ii that productivity growth and real wage growth went hand in hand. over the past few decades, they've become delinked, and that is one of the real challenges now. that's why we do things like our overtime proposals, designed to help people who work overtime to get a raise. that's why we did a regulation to help home health care workers, roughly 2 million to get a raise. but what we really need in addition to that is there's still slack in this economy. we can still do better in terms of lowering the unemployment
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rate, and one of the best ways to put the upward pressure on wages is to have even more tightening in the labor market. i think there's opportunity to do that. we're not done yet. i'm pleased with this report, but no one is spiking the football. there's more work to do. >> i know you never like to comment on fed activity, mr. secretary, but this week "the new york times" argued the fed should in the hike next week and their rationale was because wages haven't yet caught up, as you suggested, and now is not the time to load businesses with highest rates and effectively kill a wage increase. does that make any sense to you at all? >> again, as you correctly point out, i'm going to leave fed policy to the fed. what we're doing is our level best to make sure that we use every tool in our tool box to help lift wages, whether it's advocating for the minimum wage hikes, our overtime resume. the other work today, the president is in d.o.t. taetroitg about the largest grant we've
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ever made to stimulus apprentices in the united states. $175 million. one of the best ways to get a raise is to get more skills. those are the levers we're using and we're trying to build the infrastructure for apprenticeship in this country so we can help grow the middle class and help businesses who want to grow their business, have that skilled work force to compete? >> mr. secretary, do you think we could see the unemployment rate go below 5% this year? >> we're moving in the right direction, and we're going to continue to do everything possible. what's remarkable is if you looked at what the pundits said a couple of years ago about where we would be now, very people predicted we would be doing as well as we are right now. we continue to move in the right direction, but, again, we're still pedal to the metal. we're doing everything we can to make sure everyone to wants to work with punch their ticket to
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the middle class in a good job that enables them to feed their family. >> mr. secretary, speaking about the growth of middle class jobs, of the all the recent news about automation, whether it be of cars or eventually trucks, one can imagine so many jobs conceivably going away just from that innovation. today i was reading about a restaurant, or if you want to call it that, that is almost fully automated. do you worry this time with technological advances, they will destroy more jobs than they create? >> well, i look at history. it's a very fair question. but i think it's important to look at history. we've been hearing this argument since the days of the cotton gin, that automation was going to wreak havoc with jobs in america. and the reality is, what we have to make sure we do is continue to upscale american workers so we can keep pace with
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automation. there's always going to be need for human capital. there's always going to be opportunity, and that's why we spend so much time at the department of labor, investing in human capital. today it's the cloud. in five years the cloud will look like a an kan kus, and we'e trying to make sure workers are competent to adjust to tomorrow's technology. that's how we keep american workers thriving. >> we had warren buffett on the network yesterday. they were asking him about economic growth. he said 2% is okay. it's not booming. are you surprised to see lack of growth go along with the pretty good jobs number and increasing the labor market is tightening full employment? >> we saw the upwards revisions in gdp. that was promising. this year is following a pattern of last year.
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substantial improvement in the last three quarters. that appears to be the pattern in 2015. i don't have a crystal ball, but i look at all this data, and it seems to me that, again, we're moving in the right direction. i was in turkey last week for the g 20 summit of labor and finance ministers, and people look to us and say, boy we wish we had your situation. relative to the rest of the world, we're doing quite well. we still have more work to do, but relative to my colleagues i met with last week, we're moving in the right direction. >> thank you very much. good to see you. secretary of labor, thomas perez. 5.8 million job openings in the month of julg. >> when we return, shares of apple down $0.40. will a possible unveiling of that new iphone and a larger ipad convince investors they're on the right track.
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what to expect from them with the dow now only up 59 points. it's from daddy. sfx: dad's voice i love you baby girl. duracell quantum lasts longer in 99% of devices so you can always be there. ♪ on the internet... of things. what we're recommending as your consultants... the new consultants are here. it's not just big data... it's bigger data. we're beta testing the new wearable interface... ♪ xerox believes finding the right solution shouldn't be so much work. by engineering a better way for people, process and technology to work together. work can work better. with xerox.
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apple eels big event. it's expected to announce that a larger ipad proand apple tv. we have pay pal's first venture investor and a former executive at nokia. good to have you with us. >> thanks for having me. >> as we head into this event, i wo
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wonder if you are struck by the tone and this idea that somehow apple has exhausted their supply of ideas and there's nothing to do to wow us? >> i think it's kind of where they are in their cycle of product. they typically have a two-year cycle for product releases, and you have to look at where smart phones are in their overall saturation worldwide. >> what is their best move other than investing in other categories which they're clearly doing? >> today is going to be -- we're just on schedule for incremental changes to the phone. we're going to get a better processer and better camera. a different kind of skin. things that don't really get you jumps out of your seat to buy a new phone unless you're ready for one. today, classic apple and apple t tv. apple tv will be the big news of the day. >> that's what we're all curious about, although, even there,
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we're going into it with this idea that it's -- i don't want to say it's half-baked but clearly not done or polished, right? >> they've been working on it for a long time. this is one of the worst-kept secrets in silicon valley. the really hold up has been the consent deals. we're probably not going to get the kind of content deal that we expect from apple. apple was able to deliver a lot with the app store and move the carriers and drive innovation. i think the content owners in the media industry have been more difficult for them. so i think that's probably where the disappointment is going to be. but the real thing, the real thing that i'm excited about is gaming. i expect there to be some pretty interesting innovation around the hand set. i think that the price point is really interesting. i think they're going to drive a new sector of casual gaming in the living room. that's where they hope there's going to be growth, and that's where their app store model to be extended. that can add revenue. >> i was going to ask you about
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the app store. i'm looking at the list of companies that you have backed. pay pal, way, slide, bit phone. what are your expectations in terms of the app store and what that will do for apple's profitability around new products like the tv? >> you have to look at the price positioning of the tv or at least what's rumors. this is going to be about three times more expensive than the existing apple tv, around $150 is the best guess i've seen. but that's a third of what the gaming platforms are. so gaming platform companies and players, hard core players, i think they're going to underestimate what apple is going to roll out, but regular people who apple really touches with their unique interface is always very good. i think that the new controller, putting that game out, getting people excited about it is going to open up a market for developers to create a new genre
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of casual gaming that will be, if you remember back, things like angry birds, we could barely conceive of when the iphone was launched, but that became a worldwide phenomenon. i think you'll see a few interesting games emerge in the next cycle once this new product platform for gaming, social gaming and casual gaming gets released. >> interesting. i would argue that's not been well telegraphed or talked about going into the event. does it mean on the flip side, negatives for xbox or any other consul maker? >> i think the incumbent is like any industry. tech is the worst. the incumbents put out a lot of comments about how this is underwheming, but i think somebody over there has to know this is going to start to erode part of their market, and it's going to grow the broader market. hard core gaming, it's a lucrative business, but it is a
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niche. there's only so many people that want to play that. but this is something where the whole family plays. the fact the interface can go from your-from your hand set to the tv, that's a much broader market as we know. we're all now addicted to our phones and play a lot of games on our phones. i think being able to jump to a bigger screen with a new kind of interface and a new kind of sensor which is more wii like can open up possibilities for creative programmers. >> john, we're going to see what happens in san francisco in a few moments. appreciate your time and insight. thank you. >> thank you. >> general partner and co-founder of blue run ventures. >> would china be leading the world into recession in we'll talk about that call. "squawk on the street" will be right back.
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big day? ah, the usual. moved some new cars. hauled a bunch of steel. kept the supermarket shelves stocked. made sure everyone got their latest gadgets. what's up for the next shift? ah, nothing much. just keeping the lights on. (laugh) nice. doing the big things that move an economy. see you tomorrow, mac. see you tomorrow, sam. just another day at norfolk southern. good. very good. you see something moving off the shelves and your first thought is to investigate the company. you are type e*. yes, investment opportunities can be anywhere... or not. but you know the difference. e*trade's bar code scanner. shorten the distance between intuition and action.
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>> straight ahead, china's stock market falling more than 35% in
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the last three months. obviously spurring global fears about its economy. but which countries have the most to lose from a china slow down? we'll have more on that after the break. ♪ no student's ever been the king of the campus on day one. but you're armed with a roomy new jansport backpack, a powerful new dell 2-in-1 laptop, and durable new stellar notebooks, so you're walking the halls with varsity level swagger.
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good morning. here is your cnbc news update. in an audio tape, an al-qaeda
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leader dismissing the islamic state movement and the leader as ill legitimate. he said his followers would join them in syria if to believe. scary moments at mccarran airport in laug. a british airways jet was preparing to take off when it caught fire. you can see the huge clouds of black smoke billowing from the aircraft. the takeoff was aborted. everyone made it off the plane. 13 people sustained minor injuries. mcdonald's will switch to cage free eggs over the next ten years. activists have long-called for the banishment of battery cages which confine hens to small spaces. queen elizabeth has passed the record set by queen victoria. she took the thrown in 1953 when she was 25.
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congratulations to her. that is your cbnc news update this hour. let's get back to "squawk on the street." >> thank you, sue. worries about china causing the majority of recent market volatility in the u.s. and abroad, but is this a case of the microtail wagging the macro dog? >> carl, that's pretty much the story where the market seems to concerned with chinese economic weakness thinking it will determine outcomes in the u.s. and europe. it's the other way around. if we do well, they do well. if they do badly, in fact, we do well too. i talked to baunch a bunch of economists on this. let's look at the chinese, european relationship first. these are exports from china to europe, and these are the sales
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from europe to china. a three to two relationship. bottom line on this relationship is they send a lot of stuff to europe but europe sends less stuff there. let's compare that to the u.s. relationship and china. here what you see is a much bigger split. only $121 billion exported to china and they send us about half a billion in goods. bottom line is they need us to do well, and when they do badly, as deutsche bank found in a recent study, we don't do that badly hardly at all. take a look at the countries and the impact on gdp. what you find here is a lot of your commodity exporters. what they did is modelled in a severe chinese slow down. argentina, russia, and then asian countries, brazil, and then japan, and then germany and france do worse than the u.s.
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right here, the last of the major companies in terms of the gdp loss from a china slow down. check out what happens. this is a study that came out yesterday from the kansas city fed of foreign investment in the u.s. by their source. major spike in chinese investment in the u.s. as that economy has slowed, they've been sending us billions and billions of dollars. three standard deviations from normal chinese investment. so, sara, people need to put this in context. the u.s. determines china outcomes, not the other way around. >> that's interesting research. thank you, steve. we'll talk about is china leading the world into recession? that is a question posed by the chief economist at citi group. it's good to see you. thanks for coming on. >> pleasure. >> we know that china is the second-largest economy, but it doesn't necessarily mean that
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when china sneezes everyone else catches a cold, particularly the u.s. why are you using the recession word? >> well, the kind of relationships that were emphasized in the previous consideration, are not causal. if china does worse, than everyone else does worse. it's mitigated somewhat by weaker commodity prices, although there are two, u.s. being a much smaller oil importer and an agricultural exporter. there's no doubt that a slow down in china does nobody any good, except a few very commodity intensive importers. but certainly the u.s. is adversely affected by the slow down in china. and it is now large enough to matter. chinese trade, has a share of
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total world trade, is larger than that to the u.s., and the notion that a significant slow down in china, and that is underway already. that's not a question. the question is will it go furtherer? my view is, it likely will, because this is a classic recession scenario, excess capacity, excessive leverage in the corporate sector, and two booms, bubbles, and busts, first in the housing market and then in the stock market, that have prepared the ground. this is, i think, a classic recession scenario. it will have global consequences. >> china has a 7% growth target. you say growth is lower than that. you're throwing out the 4 % number. what's actually happening in the chinese economy? >> well, the index based on the
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famous three measures, real growth, electric power consumption growth, and the growth of broad credit aggreg e aggregate. that gives growth of 3 .4%. you make some adjustment to allow for growth in the service sector which is doing better. we get to something around 4 %. the official data is meaningless. >> what does a global recession mean in the united states? can the u.s. still remain the best house in a bad neighborhood? the labor secretary was on with us talking about being in turkey over the weekend saying everybody is jealous of the u.s. they want our growth rate. they want what's happening in our labor market. can that continue if we could be looking at a global recession? >> you can always compensate for weaker external demand and even for the likely strengthening of the u.s. dollar that will take
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place as emerges markets depreciate their market to maintain their demand for their products. but clearly, if the u.s. raises interest rates, unless there were to be some other source of the domestic demand, it is unlikely that this will allow the u.s. to maintain the kind of growth rates, 2 .5%, for this year, most likely, that we are currently expecting. so it's possible that the u.s. can skate through this unscat d unscathed, but it would require a meaningful policy response. >> this is a pretty negative view. it's more negative than the consensus on global growth and the u.s. what and the idea that flows will come to the u.s.? yes, the u.s. dollar will
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strengthen, but that will help our economy as flows come out of emerging markets and out of china? >> for the u.s., clearly, domestic demand is much more important than external demand. the rest of the world does, however, have an impact. and unless you compensate for it you do worse. the notion the u.s. can drag the global economy along is no longer the case. they are 20 % of global gdp. it is no longer the only big beast in town. they're n there are now a number of big beasts but nobody is as dominant in the global economy as the u.s. was ten or 20 years ago. >> you think it's priced in, the global recession risk that you paint? >> no. it doesn't seem to be. >> in global stocks, you're talking about? >> in global stocks, indeed. also in global yields and in the
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pricing of the likely future fed funds rate. all these things should be softer as a result, and you don't see enough of that. a bit of an issue when china had its stock market debacle, and the exchange rate regime change, but that was really volatility rather than anticipation of a global recession, so i think a significant global downturn concentrated in emerging markets but also impacting on the advanced economies is not priced in at the moment. >> even those among those who are bearish on china, there are those who foresee a slow down and a recession such as yourself. others go farther and say this will end in a systemic credit event. i wonder if that's part of your scenario, given the incredible
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amount of reserves they have in. >> it's not. the slow down is a classic cyclical slow down. it does not include a foreign exchange or a financial crisis. clearly, china is still 3.5 trillion in reserves, and 2 trillion net external positions, a large global creditor is not externally vulnerable, but, remember, the u.s., which sort of has inif i gnat reserves, had a huge financial crisis not that long ago. it's possible to have reserves coming out of your ears and still have a recession and a financial crisis. >> we're going to live it there. you're depressing us too much. thank you for your thoughts.
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as we look at the gains slipping away for the markets, the dow is only up 19 points. when we come back, the new prius unveil. want bladder leak underwear that moves like you do? try always discreet underwear and wiggle, giggle, swerve and curve. with soft dual leak guard barriers and a discreet fit that hugs your curves. so bladder leaks can feel like no big deal. get your free pair and valuable coupons at always discreet.com
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conversation with mike faber. more "squawk on the street" is straight ahead.
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at ally bank no branches equals great rates. it's a fact. kind of like shopping hungry equals overshopping. the s&p up now just two points. take a look at the energy sector. it is leading with materials.
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back with more on that. interesting to see given oil prices are under pressure. >> that's right. right now stocks across the board near the lows of the early days so far. competing with energies. the gains are starting to fade quickly. energy as a sector is in the bear market territory. down by about 30% from the september 2014 highs. among the stocks leading the sector on a relative basis, phillips 66. con sol energy, and new field exploration up. but these types of sectors are about whethers the fundamental buying or short squeezes. we a >> we are here with phil. >> let's bring in the ceo from toy a. last night they unveiled the new
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pre us. thanks for joining us. what stands out to you about the new prius? some say it doesn't look a lot different? >> i think it is a lot different. part of it is you have this kind of iconic profile of the vehicle that's really appreciated by our prius customers today. what's really different about the car is the lower center of gravity. it has a betterer handling characteristic. it's an increase of about 10% in mileage as well as some technological features. it is markedly different from the car we're selling today. >> the prius has long been one of the vehicles that moves in tandem to gas prices. when gas prices are high, prius sales are high, and when gas prices are lower like now, it struggles which it is doing right now.
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we're entering an environment where we're going to have low gas prices for a while. does that concern you about demand for the prius with that? >> well, i think it's a little bit of a head wind, but, again, we have two million priuses on the road in the u.s. these are very loyal buyers. so i think we're going to see a lot of loyalists come to purchase this car and some conquests as well. while fuel prices are high, this segment is still going to be about 500,000 vehicles of which we have a commanding share. i think our chances are quite good. would it benefit from higher prices of fuel? probably so, but it's difficult to separate a car that is in its sixth year and high fuel prices, because both of that has an impact on overall volumes. >> i understand what you're saying but the other people who are critics of the prius and of hybrids will say, look, you look at most small cars, they're getting close to 40 miles per
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gallon. does a new prius that gets maybe 60, is it that much of a game changer? >> i think it is. and i think if you talk to current prius owners, they would agree. they buy this car for a number of reasons. it is a fun to drive car. people like the styling. people like the technology. so not everyone buys prius just solely based on fuel price or average mpg. there are a number of reasons they buy it. >> we'any chance we get to the time record of sales or do you see it plateauing this fall? >> i don't know. it could get close to it. remember, labor day weekend was in august last year. it's in september this year. that's one of the biggest selling weekends of the year, so i think we're going to see a
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very strong september. we may get close to it. obviously, when most of the year is past, it's a little tougher. we'd have to have a couple months near 18 to get there, but it's possible. the market right now, especially light truck the red hot. >> the ceo of toyota north america joining us this morning. jim mentioned it will have better -- they're expecting the mpg to be about 55 or 60 miles per gallon. >> phil, thank you. up next, investing in takeover targets. why one asset management firm says big companies like apple are better buying smaller companies, interesting investment strategy to discuss.
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big day? ah, the usual. moved some new cars. hauled a bunch of steel. kept the supermarket shelves stocked. made sure everyone got their latest gadgets. what's up for the next shift? ah, nothing much. just keeping the lights on. (laugh) nice. doing the big things that move an economy. see you tomorrow, mac. see you tomorrow, sam. just another day at norfolk southern.
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with sky-high start-up valuations some investors are nervous. our next guest says stick with the public instead. eel be watching today's apple
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announcement for clues, joining us from san francisco is frank timmons, co-founder of pier 88. frank, tell us about your strategy, it's been a story all year. we've been watching as the private valuations soar. above the public valuations, just how are you taking advantage of that gap? >> sure. yeah, thank you for having me. i think if you step back, this fund really focuses on technology sector, and health care sector. and if you look at the sector, they have a lot of cash. big cap companies, they really need to buy growth through buying small innovative companies. so that's what period 8 tried to do, we moved out from the east coast to silicon valley, to try to understand where the big giants were going to start to put their investment dollars. >> i know you have a solid track record of companies, investing in public companies, cubist by
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merck, you can't name any names for us in terms of the public companies you're watching to be acquired next, but giver us some categories as to what the big companies might be looking for in terms of what they're going to buy. >> sure. right, thank you, we've been very fortunate to have had eight companies acquired in the last two years. and really it's stepping back and looking where the big companies are colliding. if you look back. some traditional partners are starting to compete. so areas where we still think there's a lot of activity. we, the security space. all big-cap companies are talking about, a main issue for their clients. you see a lot of these technology companies trying to move from selling directly to the chief investment officer, to the marketing side of the house to really grow revenue so we like the marketing space as well. >> so those are big two areas i would look at. >> what about apple? it has more than 200 billion in cash. what do you think it is going to look to acquire? what are you going to be looking for in today's event to get a
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clue? >> it's a great question. apple -- great, great company. a lot of cash. think if you look at their history, think they've done close to 70 acquisitions, mostly on the private side. one of the bigger ones recently was beats for $3 billion. and a platform company, where i think they're probably trying to get to is they have distribution, they have client. they have access devices, but they need content. they're looking i think if i were them to try find a way to keep you. so you're not worried about the next iphone or next tablet. but how you stay with the network within that system to not want to leave. >> finally, frash, you mentioned the cash balances, we know they're high, a lot of it is overseas and no indication they're going to make the rules easier to repatriate it. does that temper your view? >> right. you know, about a third is overseas right now it doesn't limit the ability of these companies to raise debt.
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one of the signals we look for is convertible bond space and you'll typically see companies raise convertible bonds. sometimes that's a signaling effect. that's how sales force went and acquired an exact target. raised about $2 billion in the convert market here, fairly low interest. so these companies have great borrowing capacity. and we also think that if there's discussion about raising rates, it actually hits kind of a shot clock, where management teams realize that we're at easy money right now and maybe this is a good time to start putting that money to work. >> we've got to leave it there, frank, thanks very much. an interesting perspective on the apple event. frank timmons an investor on pier 88. a news alert. concerns bbo. the s.e.c. had charged bbo and five partners in connection with false and misleading audit operations. bdo and those partners have settled. bdo will pay a $1.5 million penalty.
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in addition to that, a $600,000 disgorgement. now the s.e.c. also alleged that mr. pence, who is involved in this as well. former u.s. attorney steven pence, also among those charged, but he, here, is basically the s.e.c. charges mr. pence, this is not settled. this is going to be litigated. the s.e.c. alleges right now that the firm bdo dismissed red flags and issuing false statements. the s.e.c. also at this point alleges that pence misled auditors and investors while acting as a front man for convicted felon, who was actively scheming to misuse company funds. so we'll keep you posted. that part of this is going to be litigated. sara, guys, back to you. >> thank you very much, sue herera. we're all over the apple announcement coming up in "squawk alley."
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good morning, it is 8:00 a.m. at the bill graham auditorium in san francisco, california where in a little under two hours, apple is expected to unveil a new iphone and maybe more. "squawk alley" is live. ♪ ♪

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